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Beowulf: Notes on the Miniwage

8:35 pm in Uncategorized by letsgetitdone

Marshall Auerback recently posted in support of raising the minimum wage, joining Jamie Galbraith in advocating for it. This caused some disagreement among bloggers sympathetic to Modern Monetary Theory (MMT).

In particular, Rodger Malcolm Mitchell expressed his disagreement with Marshall in a straightforward critique, proposing an alternative and much more comprehensive initiative designed to move the economy toward the 5 goals Marshall set out in his post. The dispute received a very good discussion at Mike Norman’s site, with the main point being that everyone would favor Rodger’s alternative if it could be passed, but that Marshall’s proposal was much easier to get passed.

To this point, beowulf, a blogger and commenter much respected in MMT and Modern Monetary realism (MMR) circles, added a number of lively comments about the desirability of raising the minimum wage that I think are worth blogging here. He said:

“Minimum wage laws are like hummingbird wings. In theory they shouldn’t work at all, in the real world they work pretty well.

Australia’s minimum wage was just bumped to A$15.96 an hour, US$16.84.hr at today’s exchange rate. Unemployment rate is 5.2%.

Think about that, their U3 rate is three points lower AND their minimum wage is more than double ours. Either the Coriolis effect makes neoclassical economics work backwards in the Southern hemisphere, or mainstream economists are a bunch of astrologers who think they’re Carl Sagan.

$16.84/hr is high enough that a full time worker making that here would be means-tested out of food stamps, section 8 and other income security programs.

So what’s going on is Australia puts the cost of a living wage for the working poor on their employers instead of taxpayers, enabling govt spending to be focused on other needs– like universal Medicare and a Social Security system so broad it would impress even Rodger Mitchell.

Then later on he added:

“One other thing, this John Stossel post last month may be the most mendacious thing I’ve read all year.

“Statists say that Australia is proof that minimum wage laws help workers. They point to Australia’s 5.1% unemployment rate… But statists ignore the details.

“Most people who earn minimum wage are young, unskilled workers. How are they doing in Australia?

“In June, Australia’s unemployment rate for workers age 15 to 19 was 16.5%.”

“That’s digging pretty deep for an unemployment stat. Curious that Stossel neglected to mention the comparable US stat (for workers 16 to 19). In June, their unemployment rate was…26.6%.

That Coriolis effect is CRAZY.”

And then he added a bit more:

”OK, this is really the last one…

“According to the Heritage Foundation/WSJ “2011 Index of Economic Freedom”, Australia’s “government spending as a percentage of gross domestic product (GDP)” is less than that of the United States; 34.3% vs 38.9%.

“Stop and think about that… universal Medicare (with dental!), a jumbo size Social Security system, a defense policy of jumping into the same wars we do (including Vietnam and Iraq) and Australia still spends less on government than we do. At risk of sounding hyperbolic, I”d say that Coriolis effect is strong enough to move hurricanes (and cyclones). :o)”

These are great comments, and I’ll draw out their implications a little further.

– First, Australia is one of many nations with minimum wage rates way above our own. They’re no exception. Internationally, they’re closer to the rule; and among major nations, we are the shameful exception.

– Second, a recent Credit Suisse study shows the United States is 24th in the world in Median Wealth per adult. One of the reasons for this certainly can be the sad state of the minimum wage rate compared to other nations.

– Third, when a prediction is correct in theory, but not in the real world; then the most likely explanation is that the theory that says it won’t work is wrong. Capish? And

– Fourth, when will American legislators, politicians and political parties treat American citizens and their constituents at least as well as the legislators, politicians, and political parties of other democracies?

That is the question that has been blowin’ in the wind for at least 35 years now. Time to retire this group of bozos, crooks, and corporate ideologues.

And while we’re at it, let’s not forget the Justices of the Supreme Court. At least five of them need impeachment badly before they complete the turnover of this country to the corporations!

(Cross-posted from Correntewire.com.)

What If the US Didn’t Join the Race to the Bottom?

10:40 pm in Uncategorized by letsgetitdone

Deficit terrorism has lately turned to deficit hysteria. With Germany leading the way, most Eurozone countries appear ready to implement austerity programs. The United Kingdom, under its new Conservative/Liberal overlords, appears to be taken with austerity too. And Canada, Australia, New Zealand and Japan have all jumped on the bandwagon. But it doesn’t look like this bandwagon will include Brazil and Argentina. They’ve had their fill of austerity, and the prescriptions of the IMF, and they’re not taking on neo-liberal ideology again any time soon. The question is what should the United States do?

I’ve already written about the consequences of joining the race to the bottom (for example, here and here) as the Peterson Foundation, The National Commission on Fiscal Responsibility and Reform and perhaps the President, seem to want us to do. They promise not to be very pretty, and, in particular, to deepen the recession and perhaps result in a Great Depression II. But what happens if we say no to that, and decide instead to implement a Federal Jobs Guarantee (FJG) Program, a payroll tax holiday, and a Grant to the States of $500 per person to ease their financial difficulties and save jobs?

The domestic effects of that would be to produce full employment in the short run, end the recession, and enable more people to meet their mortgage payments, so that there would be fewer toxic real estate assets. In the longer run, people would move from the FJG program, into the non-Government sector, reducing the size of the FJG program. Here’s my view of the global consequences of such an expansion in the context of a world gone mad with austerity.

First, of course, the international money boys and the globalists would be screaming about our fiscal irresponsibility in putting the interests of the American Middle Class, poor people, and older people ahead of their perceived financial interests. They will engage in an orgy of forecasts of doom and assertions that the international credit agencies will downgrade the US’s debt rating and that this will result in much higher interest rates for US debt instruments. If the US is threatened with such a downgrade, it can and should respond with a statement indicating that it has no solvency risk since it can always meet its fiscal obligations, and that if such a downgrade takes place it will immediately stop issuing debt instruments in coordination with its spending. Since, if the US does actually goes through with this it would drive short-term interest rates down to near zero, this will have the effect of showing the financial markets that they don’t control US interest rates, but that the US can easily do so given its authority to spend without either taxing or borrowing.

Second, of course, whether or not the above scenario occurs, those nations that have embraced austerity, will find themselves with a great need to export goods to prevent their economies from totally collapsing. Their desire to export to the US market, which will have been once more invigorated with consumer demand by full employment programs and other Government spending to end the recession, will leave them with little choice but to accept USD in return for their goods, and to price those goods sufficiently low to prevent the rise of US competitors.

The resulting imports are real wealth for Americans, and with most nations trying to export, but not to import, US citizens will have a great opportunity to acquire that wealth in return for nothing more than dollar credits. Of course, we won’t be able to export much ourselves initially because austerity in other nations will lower demand, so our balance of payments will go increasingly negative. But this will only increase the holdings of foreign citizens in USD, until a breaking point is reached. That breaking point would come sooner if we stopped issuing debt instruments when Government spends, because other than leaving their currency in Federal Reserve accounts and earning zero interest, holders of USD will have only one other choice, namely buying American goods and services.

Third, the initial growth of exports to the United States, will also have the effect of draining off some of the USD the Government created to bring the domestic economy to full employment and use of domestic productive capacity. When that happens the Government will have more room to spend to maintain full employment without causing inflation. In addition, just as the US credit expansion since the 1990s has driven the world economy in the past, the US Government spending expansion can drive it in the future, until other nations begin to understand that austerity in Government spending in their own nations isn’t the driver of prosperity, and that if they want their own citizens to begin to acquire real wealth they have to stop sending it to the United States in return for mere electronic credits, and begin to emulate the US in resorting to functional finance to ensure that their own populations are fully employed.

Fourth, it’s unlikely, that there will be any inflationary consequences if we choose full employment rather than austerity. Why should there be? In the beginning, the gap in employment will be filled by Federal jobs that perform services of various kinds and produce various intangibles at the minimum wage. As time goes by and the privates sector wakes up and draws people out of the FJG program and into private sector jobs, increased wages and profits will produce greater demand, but much of that will be bled off by imports, so that expansion of demand for US private sector productive capacity will be gradual and also will be in new industries where imports are not dominant. In this kind of expansion there won’t be any demand pull inflation. Of course, there could still be sudden price shocks coming from artificial scarcities caused by market manipulations in certain commodities like oil. But the economy will be able to adjust to these without accelerating inflation.

Fifth, and not least at all, if the US chooses this course, we would, destroy, for good, the myth that austerity accomplishes any good in a recession or depression. It’s important to do this because austerity hurts people, and the myth that justifies it ruins lives. This myth has no basis in fact, and seems to have a certain appeal only for those who have a taste for hair shirts and flagellation experienced by others, while they themselves experience few or no material sacrifices themselves, and may even benefit from austerity because the measures accompanying it give them a chance to profit.

So, apart from the other benefits of choosing to end the recession through fiscal expansion for ourselves, we could do great good for other nations as well. For all they would have to do would be observe our example, and see that it worked, and then the curse of resurgent Hooverism, also known today as deficit hawkism, terrorism, errorism, and sometimes, even hysteria, would be gone forever. The march toward plutocracy we have seen for the past thirty-five years would be ended. And, finally, the prospects for real democracy grounded in a greater measure of economic and social equality would be enhanced.

(Cross-posted at Fiscal Sustainability and All Life Is Problem Solving)

President Obama: Do Town Halls in Canada and France and Send Hillary to Australia and New Zealand

1:15 pm in Uncategorized by letsgetitdone

The Health Insurance companies and other opponents of government-funded health care have been trying to overcome the statistical evidence of the superiority of public systems by spreading “Fear, Uncertainty, and Doubt” using horror stories and, of course, outright lies about the failures of health care in other nations having such systems. Those of us who favor health care reform, either single payer, or plans with robust public options, have been replying with horror stories about health care here, and testimony from individuals, primarily Americans in Canada, or Canadians, about their own very positive experiences with Canada’s single payer system. The exchange of stories is probably somewhat effective, especially because people here really don’t trust the sources of the anti-Canadian health care anecdotes. Wouldn’t it be a big improvement, however, if we could cut through all the static and win the health care anecdote war? Guess What? I think we can. Read the rest of this entry →